In the Union Budget for FY 2023, the Government of India announced plans to introduce a battery swapping policy and interoperability standards with the intent of building and improving the efficiency of the battery swapping ecosystem, thereby driving EV adoption. Subsequently, Niti Aayog has released a draft of battery swapping guidelines recently. It is a step in the right direction and provides guidance on multiple areas, including interoperability, traceability and data sharing, business models, fiscal support, grievance redressal, battery reuse, & recycling and implementation of battery swapping stations.
The policy currently advocates usage of only advanced chemistry cells (ACC) batteries, where the performance is equivalent or superior to EV batteries supported under the FAME II scheme, along with an option to add specifications or standards from time to time. An open communication protocol for ensuring back-end interoperability in the battery swapping ecosystem has also been proposed. In order to ensure quality adherence and safety, batteries would be tested and certified as per AIS 156 (2020) and AIS 038 Rev 2 (2020) standards.
This is apart from any additional tests prescribed for swappable batteries. Standards for battery charging stations (BCS), battery swapping stations (BSS) and battery recycling or reuse are also likely to be developed. Further, for traceability, the policy proposes unique identification numbers (UIN) for batteries and swapping stations. Accessibility to information on battery health and performance and flexibility to switch networks is also proposed, to increase transparency.
EV charging infrastructure scenario
Globally, 6.8 million EVs were sold during CY 2021, compared to 3.2 million sold in CY 2020. The share of EVs in global light vehicle sales almost doubled to 8.3% in CY 2021 compared to 4.2% in CY 2020 and 2.5% in CY 2019, and this is only expected to increase going forward. There is an expectation of healthy EV penetration in India as well over the next five years, especially in the electric 2W, 3W and bus segments. However, to achieve healthy EV penetration, expansion of charging infrastructure will play a critical role. Nevertheless, the charging infrastructure in India remains nascent.
Currently, there are only about 1,800-2,000 public charging stations in India. To increase the charging infrastructure network, the Government of India has allocated a total outlay of ₹1,300 crore for EV charging infrastructure through the Faster Adoption and Manufacturing of Electric and Hybrid Vehicles in India (FAME) scheme. Further, the Government of India has proactively amended guidelines for charging infrastructure development in the country. The revised policy has simplified land & electricity procurement and issued guidance on locations of priority for EV charging infrastructure installation. In addition, some states have also provided capital subsidies for charging infrastructure.
To capitalise on the potential opportunity in the space, several PSUs and private players have also announced plans to foray into charging infrastructure. Given the relatively high capital cost of over ₹25 lakhs per charging station and relatively high operating costs, asset utilisation becomes critical. ICRA estimates that it would take about four years for an EV charging station to break even based on current expectations of EV penetration and commensurate asset utilisation, not accounting for any subsidy.
Challenges and trends
Demand for automotive components stems from domestic OEMs, replacement and exports. Domestic OEM demand has remained a mixed bag across segments in FY 2022 with slowdown in two-wheelers and semiconductor shortage dragging down overall production volumes. Improvement in personal mobility, healthy freight movement and deferment of new vehicle purchases due to cost inflation are factors that have supported replacement sales in the last few months. Part of the revenue growth in both these segments has also come from commodity pass-through.
Exports have remained a bright spot in the Indian automotive component story, partly aided by the China + One strategy. This is despite supply chain issues. ICRA believes that the growth in FY 2022 exports would have been even better if not for the semiconductor shortage. While automotive ancillaries have healthy export order book for the next few months, the impact of geopolitical and supply chain issues on actual off-take remains a monitorable aspect. ICRA expects 13-15% revenue growth in FY 2022 for the Indian automotive component industry, driven by domestic OEM, replacement, export volumes and pass-through of commodity prices. The healthy volume growth would, however, come on a low base of FY 2021. For FY 2023, ICRA expects revenues to expand by 8-10% supported by easing of supply chain issues and commodity inflation in H2 FY 2023.
Over the long term, premiumisation of vehicles and focus on localisation will translate into healthy growth for automotive component suppliers. If the Q1 FY 2021 impact is excluded, the margins for Q2-Q4 FY 2022 are likely to be lower by 200-250 bps on YoY basis for automotive components, excluding tyres. While cost pressures are likely to continue in H1 FY 2023, ICRA expects YoY improvement of 100 bps in operating margins in FY 2023 because of expectation of a relatively better H2 FY 2023. The operating margins for the excluding tyre sample are likely to return to the pre-pandemic levels of 10-10.5% in FY 2023.
ICRA research expects healthy electric vehicle (EV) penetration in India over the next five years, especially in the electric 2W, 3W and bus segments. The penetration of electric 2Ws is expected to be about 13-15% of new vehicle sales by FY 2025. Likewise, the electric 3W and electric bus segment penetrations are expected to be greater than 30% and about 8- 10% of new vehicle sales respectively by FY 2025. However, in order to achieve healthy EV penetration, expansion of charging infrastructure will play a critical role. ICRA experts say, battery swapping is an alternative solution to developing EV charging infrastructure, especially for commercial applications. This is currently in nascent stages in India. Battery swapping is advantageous – it is a quick way of recharging a vehicle and is cost and time-efficient. It reduces the upfront cost of EV as battery ownership is replaced by battery leasing.
There is increased predictability of battery life due to controlled charging conditions. However, ensuring interoperability, adequate financing availability and maintaining sufficient battery inventory can prove to be challenging. Battery swapping is still in nascent stages in India and there could be multiple models that could emerge as the market matures. Thus, the policy is agnostic to business models. However, it proposes fiscal support through demand incentives and some guidelines of land provision and electricity tariffs. It also recommends easing the approval process through a single window system. All of these will ensure faster penetration of battery swapping as a service in the Indian market. However, while the battery quality and standards could improve financing, the extent of funding penetration remains to be seen.
The way ahead
No matter the challenges, the Indian government, automakers, stakeholders and consumers are all equally positive towards bringing in the EV revolution in India. Rather than sector development, EVs need to be developed within an ecosystem backed with the right policies, schemes, technologies and support for a promising future.